Public Service Commission holds hearings this week to determine if Ameren Missouri earned too much money

Public Service Commission holds hearings this week to determine if Ameren Missouri earned too much money

July 27th, 2014 in News

If the Public Service Commission based its decisions only on public comments and testimony submitted in a case, the commission would order Ameren Missouri - the state's largest regulated electricity provider - to reduce the rates customers pay after finding that Ameren earned more money than it should have, based on the "return on equity" (ROE) the PSC said the utility could earn in its most recent rate case.

Most of the position statements submitted for the over-earnings complaint case lodged against the utility support the complaint - and want the PSC to rule against Ameren.

The utility's current rates went into effect in January 2013.

This week - beginning at 8:30 a.m. Monday - the five-member commission hears testimony on the over-earnings complaint that was lodged against Ameren last February by 37 individual customers and by Noranda Aluminum, Ameren's single largest customer.

On Noranda's behalf, consultant Greg R. Meyer - a former PSC staff member now working for Chesterfield-based Brubaker and Associates Inc. - submitted testimony that Ameren reported a 10.34 percent ROE for calendar year 2013, which "represents an approximate over-earnings level of $31 million above the Commission-authorized ROE of 9.8 percent."

But he said in a 23-page question-and-answer testimony submitted July 3: "Based on my further analysis of Ameren Missouri's operations, I contend that Ameren Missouri is over-earning by approximately $49.5 million in revenue."

In a separate, 46-page testimony, another Brubaker and Associates consultant, Michael P. Gorman, told the PSC they should set Ameren's return on equity at 9.4, and that "my recommendation is generally consistent with the trend in industry-authorized returns on equity."

The Office of Public Counsel, created and required by state law to represent consumers' interests in PSC hearings, last week told the commission that Meyer's and Gorman's prepared testimony "supports a finding" that Ameren is over earning.

"Rates must be just and reasonable and provide the utility no more than the cost of service plus an opportunity to earn a profit up to, but not exceeding, the approved return on equity," Deputy Public Counsel Christina L. Baker wrote. "So, if the Commission makes a finding of over earning, then it is Public Counsel's position that, yes, the Commission can and should order a reduction in rates on a going-forward basis."

Former Public Counsel John Coffman, now a private-practice attorney in St. Louis, represents both the AARP and the Consumers Council of Missouri in the case.

Also citing Meyer's and Gorman's testimony, Coffman told the PSC there is "sufficient evidence to prove that Ameren Missouri is currently over-earning by a substantial and material amount."

He said consumers "deserve to have a timely reduction in rates implemented based upon the record in this case, which contains all relevant factors necessary to establish new rates."

Without offering additional comments, the Missouri Industrial Energy Consumers group and the Missouri Retailers Association also said the PSC should order Ameren to cut its rates.

But the commission's staff told the PSC in its position statement that "the Complaint has not been supported by adequate evidence of material and continuing overearnings (and) fails to consider "all relevant factors' in its revenue requirement analysis."

Additionally, Staff Chief Counsel Kevin Thompson wrote: "Staff's analysis shows that Ameren Missouri's current possible over earnings are significantly lower than Complainants assert and are not likely to be ongoing.

"Therefore, Staff recommends that the Commission not order a reduction in Ameren Missouri's rates."

Instead, the staff position paper promised that "Staff will conduct a full review of Ameren Missouri's earnings" in the new rate increase case the company filed this month.

And Ameren Missouri, the target of the over-earnings complaint, told the PSC that it "cannot order a rate reduction based upon the abbreviated process that Complainants are advocating for this case."

Although the over-earnings complaint said Ameren earned more than its ROE allowed, the company argued the "Missouri Supreme Court has recognized (that) the return a utility earns "will necessarily vary from time to time.'"

Also, Ameren's attorneys wrote, the Supreme Court said in that same 1950 court case, that "when the Commission sets rates, "no maximum or minimum return was determined.' Despite these well-established legal principles, Complainants chose to pursue their Complaint based, essentially, on the flawed assumption that a utility necessarily "over-earns,' and that its rates become unjust and unreasonable, if the utility earns more than its last-authorized return.

"However, as the case law indicates, that is not the test for whether rates are just and reasonable."

Ameren wants the PSC to take into account a number of variables that affect its earnings, including "significant rate base investments that are today in operation and serving customers, and additional significant rate base investments" coming "in just the next few months."

This week's hearings will be conducted similar to an informal trial, with witnesses who may be questioned by attorneys for all the interested parties and by commissioners themselves.

The PSC has planned to make a final decision in the over-earnings case by the end of September.